Upselling existing accounts could be 41%+ of new revenue

Retention is one of the most important statistics to a SaaS company, not only to make sure you’re not losing clients, but also to make sure you’re not overlooking a source of new revenue in the form of expansions and upselling existing accounts.  As the data below will show, upselling existing accounts can be worth 41% or more of new revenue in a given year, so make sure you’re incentivizing customer success reps with commissions to ask current clients about adding seats, and that account executives earn as much commission for expanding an existing account as they do for landing a new one.

 

First the data.  Retention is generally measured over a time period net retention and gross retention: i) gross retention is simply beginning revenue from existing customers – lost revenue ; while ii) net retention is beginning revenue from existing customers – lost revenue + expanded revenue from existing customers.  Net retention of the 18 publicly trade SaaS companies which report their data annually shows the median is 103% and average is 108%, with a range of 90% to 136%.  The data is below.

 

    2015 2014 2013
NET CHURN Ticker Retention Retention Retention
2U TWOU 120% 112% 144%
Benefitfocus, Inc. BNFT 95% 95% 95%
Box, Inc. BOX 126% 136% 144%
Castlight Health, Inc.  CSLT 116% 103% ---
Cornerstone OnDemand, Inc. CSOD 95% 95% 95%
Cvent, Inc.  CVT 102% 102% ---
Demandware, Inc. DWRE 100% 100% 100%
Five9, Inc.  FIVN 96% 96% 100%
HubSpot, Inc. HUBS 99% 93% 83%
Marketo, Inc. MKTO 105% 109% 100%
New Relic, Inc. NEWR 130% 110% ---
Proofpoint, Inc. PFPT 90% 90% 90%
RingCentral, Inc. RNG 99% 99% ---
SecureWorks SCWX 105% 102% 99%
Veeva Systems Inc. VEEV 136% 166% ---
Zendesk, Inc. ZEN 123% --- ---
Instructure INST 100% 100% 100%
Xactly XTLY 104% 102% ---
         
  Median 103% 102% 100%
  Average 108% 106% 105%

 

Unfortunately we know of only 4 companies that report gross retention. Their median gross retention is 83% and average is 86%.  The range is wide, from 80% to 97%.  The data is below.

 

    2015 2014 2013
GROSS CHURN Ticker Retention Retention Retention
Bazaarvoice, Inc. BV 80% 87% 77%
Lifelock LOCK 87% 88% 88%
LogMeIN, Inc. LOGM 80% 80% ---
The Ultimate Software Group, Inc. ULTI 97% 96% 96%
         
  Median 83% 87% 88%
  Average 86% 88% 87%

 

A few observations stand out:

 

-Companies derive a significant portion of total revenue from expansion/upselling.  Given that median gross retention is 83% and median net retention is 103%, that means new revenue from upselling accounts is equivalent to ~20% of the prior year’s revenue.  Said another way, if I had $100 of revenue last year, would have only $83 of revenue after customer losses, but ended with $103 after expansions/upsells, then $20 of new revenue came from upselling which is 20% of last year’s $100. 

 

-An even larger amount of new revenue growth comes from upselling.  Note that the median annual growth of the 47 publicly traded SaaS companies we monitor is 32%.  Given the math above, upselling accounts can represent as much as 41% of new revenue in a given year.  Said another way, if last year’s revenue was $100 and this year’s revenue is $132, if $20 of new revenue came from upselling, then there was $49 of total new revenue ($132-$83) of which $20, or 41%, was from upselling. 

 

Hopefully the above drives home how important upselling your current accounts is, not only to keep net retention above 100% but also to make sure revenue grows each year.  Make sure your customers success team is incentivized with commission to inquire about expansions with existing clients.  Also make sure commissions for account executives are just as good for upselling/expansions of existing accounts as they are for new accounts.            

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